Business Guide Lithuania 2016

General, tax and legal information for foreign investors Table of Contents

General information 2 Facts and figures. Politics.

Economic environment 6 Key economic indicators. Attractive sectors. Regional and urban economic overview and trends.

Setting up a business 10 Ease of doing business. Types of entities. Accounting and audit requirements.

Investment incentives 12 Investment financing. Legal framework. Double taxation treaties. Investment in real estate and land. Investment protection and guarantees.

Labour 16 Conclusion of an employment agreement. Working conditions. State social security issues. New labour regulations.

Immigration & permits 18 EU citizens. Non-EU citizens.

The tax system 20 Corporate income tax. Withholding tax. Value added tax. Personal income tax. Social security. Other taxes.

Useful links 31 Exhibition and Conference Management. Transport and Communications. State Institutions. Largest Cities.

PwC 32 Tax services. Legal services. Accounting services. Advisory services. Assurance services. PwC’s Academy. Contacts.

© 2016 PricewaterhouseCoopers UAB. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. © Judita Grigelytė (vz.lt), photograph on the cover. © Vladimiras Ivanovas (vz.lt), photograph on page 25. Country Managing Partner’s Foreword

It’s a great pleasure for me to present for establishing the shared service the Business Guide of Lithuania 2016. centers and outsourcing across the The Guide is a useful starting point CEE region, and Kaunas – the second for the future individual or corporate largest city in Lithuania – was award- investors in the Lithuanian market. ed as an emerging city of the year This edition provides answers to the among all the CEE countries. most common questions that the We’re proud to share our insights to investors may have: from business make your first steps in the Lithua set-up to the most relevant upcoming nian market as easy as possible. changes in the employment regula- We’re here to help you with a full tions. Our team at PwC Lithuania has range of business, tax and legal also prepared an overview of the local issues. Our people have extensive economic environment, legal require- expert knowledge and professional ments, educational advantages and experience, and they are ready to Rimvydas Jogėla governmental incentives for investing offer professional services tailored Managing Partner in Lithuania. to the needs of your business. for PwC Lithuania I’m glad that despite recent geopoliti- cal events, Lithuania’s economy has remained resilient by shifting its focus on new overseas markets. Lithuania’s economy is expected to perform even better in 2016 due to growing investments in the engineering, biotechnology and IT industries. For this reason it is not accidentally that in 2015 Vilnius – the capital of Lithuania – was elected as the best destination

Business Guide Lithuania 2016 1 General information

Facts and figures Extending to 65,300 sq. km, Lithua nia is a larger country than Belgium, Geography Denmark, the Netherlands or Swit- The Republic of Lithuania is situated in zerland. Lithuania has around 99 km Northern Europe on the south-eastern of sandy coastline devoted to a com- shore of the Baltic Sea. It is the largest bination of leisure and conservation. of the three Baltic States, the other two Lithuania has an ice-free port in being Latvia and Estonia. Lithuania Klaipėda, which is the most impor- shares its borders with Latvia in the tant and biggest Lithuanian transport north (558 km), Belarus in the south- hub, connecting sea, land and railway east (653 km), Poland and the Kalinin- routes from East to West. grad Region of the Russian Federation The climate is midway between mari- in the south-west (104 km and 249 km, time and continental. In January the respectively). To the west of the Baltic average daytime temperature is -3°C Sea lie Sweden and Denmark. (27°F), rising in July to +20°C (68°F).

Country facts Estonia

Capital Vilnius Latvia Area 65,300 km² Lithuania Population 2.9 million Language Lithuanian Dominant languages English, Russian, German, Polish Currency Euro (EUR)

Source: Statistics Lithuania

2 Business Guide Lithuania 2016 Vilnius Old Town is a UNESCO World Heritage Site.

Population and language The population of Lithuania is 2.9 million. Some 86.7% of the population are ethnic Lithuanians, 5.6% are Poles, 4.8% are Russians, and 2.9% – others. Lithuania is the largest of the three Baltic States, but globally it is a small country. Its capital and the largest city is Vilnius with a population of 543 Lithuania is ranked as the most thousand. The second and the third largest cities are Kaunas and Klaipėda favourable country in the EU with a population of 299 thousand to start a new business. and 155 thousand, respectively. The official and most commonly Vilnius is among 5 least expensive spoken language is Lithuanian. It is one of only two living languages EU capital cities to live in. (the other one being Latvian) of the Baltic branch of the Indo-European language family. About 92% of the population speak one foreign language (English, Russian, German or Polish) and more than 50% speak two foreign languages.

Time, weights and measures 93% Lithuania uses Eastern European Time, of all population which is two hours ahead of Green- have secondary wich Mean Time (GMT+2 hours). Every year, between March and or higher September, Lithuania introduces Day- education light Saving Time (GMT+3 hours). Lithuania uses the metric system of 50% weights and measures and the Celsius of all students temperature scale. are studying in Codes the fields related The international extension code for to services Lithuania is 00 370. industry The country code used in the Internet domain names is .lt.

Business Guide Lithuania 2016 3 Politics • According to the Constitution of the Republic of Lithuania (adopted in 1992), Lithuania is an independent democratic parliamentary republic. • The supreme legislative power is held by the Seimas (Parliament), consisting of 141 members elected for a term of four years on the basis of universal, equal and direct suffrage and by secret ballot. • The President of Lithuania is • Lithuania has 60 municipalities elected for a five-year term on governed by mayors which starting the basis of universal, equal and from 2015 are directly elected for direct suffrage and by secret ballot. four-year term. The President represents the state • Lithuania joined NATO on 29 of Lithuania and performs the func- March 2004. On 1 May 2004, tions prescribed to him/her by the Lithuania became a full member Constitution and other laws. Cur- of the European Union, and joined rently, the President of Lithuania is the Schengen Area on 21 Decem- Ms Dalia Grybauskaitė, who is the ber 2007. first female president in the Lithua • Lithuania was the first of the three nian history. She was re-elected for Baltic States to hold the Presidency the second term in 2014. of the Council of the European • The supreme executive power rests Union (1 July 2013 – 31 December with the Prime Minister who is 2013) since joining the European appointed by the President and the Union. Parliament. Currently, the posi- • In 2013, Lithuania was elected to tion of Prime Minister is held by the United Nations Security Coun- Mr Algirdas Butkevičius, the leader cil. Lithuania was the first country of the Social Democratic Party of from the Baltic States to be elected Lithuania. to such post. • In June 2015, the Lithuanian delegation received an official invitation to start accession process to the Organization for Economic Cooperation and Development Parliamentary elections will be held (OECD). The Lithuanian authorities will proceed with an intense in Lithuania in October 2016. technical accession process, which is expected to be completed in about two years.

Lithuania’s court system

Supreme Supreme Administrative Constitutional Court Court Court

Court of appeals 5 regional administrative courts

5 regional courts

49 district courts

4 Business Guide Lithuania 2016 Business Guide Lithuania 2016 5 Economic environment Key economic indicators Economic indicators show that during the past five years Lithuania’s economy has kept growing. As a result, in 2014 Lithuania succeeded in meeting the EU criteria for the adoption of the euro, and its national currency (the litas) was replaced by the euro on 1 January 2015.

2.9% Booming shared service centers GDP growth In 2015, Vilnius was elected as the 1.7% in 2016* best destination for establishing GDP growth shared service centres and outsourc- in 2015* ing across the CEE region**. Vilnius is attracting higher added value jobs such as business analytics, anti- money laundering, asset management support, IT development. More and Lithuania’s economy is further recovering more shared service centres choose Lithuania as their destination due to highly skilled well-educated professionals that are able to speak sev- The main macroeconomic indicators for 2011-2016 eral foreign languages, a world-class infrastructure and a good location. 2011 2012 2013 2014 2015* 2016* Currently, there are 54 shared service Nominal GDP (EUR billion) 31.2 33.3 35.0 36.4 37.5 38.1 centres in Lithuania that provide GDP growth rate, % 6.1 3.8 3.3 3.0 1.7 2.9 worldwide high-quality services: Average annual inflation, % 4.1 3.2 1.2 0.2 -0.6 1.4 24% of these centres provide finance Unemployment rate, % 15.4 13.4 11.8 10.7 9.4 9.0 and accounting services, and 22% of them operate in IT sector. * Forecast

** Source: www.ceeoutsourcingawards.com

Foreign direct Sweden, 3,175 26.3% investments Netherlands, 1,274 10.6% (accumulated as at the end Germany, 1,116 9.2% of 2014, EUR million) Norway, 803 6.7% Poland, 713 5.9% Cyprus, 663 5.5% Finland, 634 5.3% Estonia, 579 4.8% Denmark, 539 4.5% Other countries, 2,583 21.4%

6 Business Guide Lithuania 2016 Lithuania’s biotechnology sector has in Lithuania. World-class quality of been recognised as one of the most laser production has been recognised developed in the Central and Eastern by more than 60 countries importing Europe. Biotechnology research takes over 80% of the Lithuanian laser pro- place in Lithuania, and the developed duction. Such companies and organi- techniques and products are applied sations as NATO, Pentagon, Nuclear in the fields of medicine, pharmacy, Research Centre in Israel, Rezerford Attractive sectors chemistry, agriculture, environment, Laboratories in England, Berkley Uni- Information and communication etc. Lithuania’s biotechnology prod- versity, Livermore National Labora- technology sector of Lithuania is ucts are recognised worldwide as 80% tory are the clients of the Lithuanian the largest in the Baltic States. Over of them are exported to over 70 coun- companies producing lasers. 24,500 employees in Lithuania tries. Different R&D incentives are Renewable energy development is are working in this sector. Modern offered to support the development becoming increasingly important for technologies (such as EDGE tech- of biotechnology sector in Lithuania. Lithuania’s export, too. Emerging nology, 4G mobile communications The sector grows on average 26% potential of clean technology industry infrastructure and mobile WiMAX 4G every year. In December 2015 Thermo is supported by the fast development Internet), the fastest Internet upload Fisher Scientific opened a modern of five R&D and business valleys, the in Europe (3rd for download speed in molecular biology laboratory which pool of local scientists and research- Europe) and the greatest GSM pen- will produce materials for cancer ers (whose number has almost dou- etration in the EU – all these factors treatment research. bled since 2003), world-class achieve- make Lithuania especially attractive Another high-tech sector in Lithuania ments in electronics, and increasing for offshore services. is laser technologies. Every tenth interest of businesses with respect to Lithuania’s engineering industry laser sold worldwide has been made the development of this industry. has been constantly growing and expanding by approximately 18% every year since 2009. This industry is highly competitive in terms of cost and quality and it is well-integrated Lithuania has the fastest Internet speed into the global supply chains. Prod- in Europe and the fastest public WiFi in ucts developed by the Lithuanian the world for the 2nd year in a row. engineers are often adapted by such international companies and organi- Local engineering industry works for NASA, sations as NASA, Boeing, U.S. Army, BMW, Volkswagen, Hitachi, Siemens Boeing, U.S. Army, BMW, Volkswagen, and Mitsubishi*. Hitachi, Siemens, Mitsubishi.

* Source: www.lietuva.lt Local biotechnology sector is among the mostly developed across the CEE region. Local laser producers have NATO and Pentagon as their clients.

Investments expanded in 2015 Did you know that every Devold 10th laser sold in the world COWI was made in Lithuania? Lindorff Newcomers in 2015 Nasdaq Teleperformance AIG Uber

Business Guide Lithuania 2016 7 Latvia

Šiauliai Klaipėda Baltic Sea Panevėžys

Tauragė

Kaunas

Vilnius Russia Marijampolė Regional and urban Alytus Poland Druskininkai economic overview Belarus and trends

Vilnius Vilnius is the capital and the largest city in Lithuania and it has been recognised as the economic, financial and commercial centre of Lithuania. According to Statistics Lithuania, Vilnius County accounted for about 40.1% of Lithuania’s GDP in 2014. The GDP per capita in Vilnius County was calculated at EUR 18,100 in 2014. Vilnius is ranked first in Lithuania in terms of foreign direct investment. Overall 71.8% of foreign investment in Lithuania was concentrated in Vil- nius County at the end of 2014. Vilnius offers business-friendly envi ronment, highly qualified human resources, perfect infrastructure and a convenient geographical location as it stands in the centre of Europe. Most of shared service centres established in Lithuania are operating in Vilnius. Western Union, Barclays, Swedbank, AIG, Nasdaq, Computer Science Corporation (CSC) have established FSRU “Independence” makes Lithuania their shared service centres in Vilnius. the 1st Baltic State capable to ensure gas supply from an alternative source.

Development of strategic projects

• The project of the liquefied natural gas (LNG) terminal was implemented in Klaipėda in 2014. The LNG terminal, located at the port of Klaipėda, is based on the Floating Storage and Regasification Unit (FSRU) technology. The newly- built FSRU vessel “Independence” was docked in Klaipėda on 27 October 2014. The commercial operations of the terminal started in December 2014.The terminal is capable to meet 90% of gas supply needs of the three Baltic States*. • The first section of Rail Baltica – a European gauge railway – from the Polish border to Kaunas was opened in October 2015. The second phase of the project is being developed, and it will connect Kaunas with Riga and Tallinn. • Two electricity power links to Poland and Sweden will start operations in the beginning of 2016, thereby connecting Lithuania’s power grid to Europe. New foreign direct investments are expected due to the favourable effects of cheaper Swedish electricity and increase in Lithuania’s competitiveness.

* Source: www.investlithuania.com

8 Business Guide Lithuania 2016 Kaunas for small and medium enterprises. The favourable geographical loca- It also helps to attract the talented sci- tion, convenient road, rail, water and entists to the business organisations air infrastructure, strong R&D base, in Kaunas and foster entrepreneur- highly skilled labour force, flourish- ship in general. There are 2 integrated ing knowledge-based businesses and science, study and business centres modern industry make Kaunas region (valleys) in Kaunas – Santaka and one of the most attractive places for Nemunas. Santaka – the first medical investment in Lithuania and the Baltic and pharmaceutical valley in the Bal- States as a whole. It is a city of young tic States – has been established for people and it has the second largest public and private research to set up number of students (approx. 39,500) knowledge-intensive businesses and compared to other cities in Lithua- provide value-added, knowledge-in- nia). Kaunas has eight universities, tensive services, while Nemunas pro- including Kaunas University of Tech- motes the development of Lithuanian nology, which is the largest provider agriculture, forestry and food sectors. of engineering specialists in Lithua- Kaunas was awarded as an emerging nia. Close partnership with universi- city of the year among CEE countries ties builds a pool of highly qualified with 200% growth in terms of num- multilingual specialists in IT, human ber of projects, and 450% growth in resources and finance*. terms of number of new jobs. Kaunas County generates 19.7% of total GDP in Lithuania with about EUR 12,300 nominal GDP per capita. Kaunas is mainly focussing on the Kaunas has become an increasingly popular investment development of technologies and destination for the companies searching for IT solutions: innovation. Science and technology park Technopolis provides infrastruc- Callcredit, Intermedix and Virtustream have chosen ture and innovation support services Kaunas for their business expansion.

Klaipėda man resources, competitive business trains compared to other means of The port of Klaipėda is the northern- development costs and incentives transport. Palanga International most ice-free port on the east coast of for investors make Klaipėda espe- Airport is located only 35 km from the Baltic Sea. In 2013, the dredging cially attractive for foreign investors. Klaipėda, it offers connecting flights works were finished, which improved The dominant sectors in Klaipėda are to a variety of European cities. the safety of large ships in the port. shipbuilding and ship repairs as well Klaipėda County itself accounted The reconstruction also improved as transportation and logistics**. for around 12% of Lithuania’s total its competitiveness and increased its Klaipėda offers cargo delivery possi- GDP in 2014. In 2014 the GDP per capacity compared to the neighbour- bilities for business in a much shorter capita in the County was calculated ing ports. time and at a lower tariff by container at EUR 13,100. A convenient geographical location, sustainable economic growth, excellent infrastructure, highly skilled hu-

Convenient geographical location and business development incentives make Klaipėda especially attractive for foreign investors.

* Source: www.ceeoutsourcingawards.com ** Source: www.investinklaipeda.com

Business Guide Lithuania 2016 9 Ease of doing business Setting According to the World Bank’s Doing Business 2016 report, Lithuania climbed four positions and ranks 20th up a business among the world’s most business- friendly countries. Lithuania’s strengths are demonstrated in the fields of registering property, starting a business, enforcing contracts and Setting up a business is quick and easy dealing with construction permits.

Open an accumulative Submit establish- Register a company Open a settlement bank account with ment documents with the Register bank account for minimum capital to a notary of Legal Entities ordinary transactions 1 day 1 day 3 days 1 day

Types of entities Private limited liability company (UAB) Public limited liability company (AB) - Separate legal entity (legal entity with lim- - Separate legal entity (legal entity with limited liability) ited liability) - A shareholder may be held liable for the ob- - A shareholder may be held liable for the obligations of a company only in the event of ligations of a company only in the event of failure to fulfil the obligations due to unfair failure to fulfil the obligations due to unfair actions of the shareholder actions of the shareholder - May engage in any legitimate activities - May engage in any legitimate activities - May engage in licensed activities upon - May engage in licensed activities upon obtaining the respective licence obtaining the respective licence Minimum amount of share capital is Minimum amount of share capital is EUR 2,500 EUR 40,000 Registration in 1-2 weeks Registration in 1-2 weeks General meeting of shareholders (sole share- General meeting of shareholders (sole shareholder) and general manager (single-member holder) and general manager (single-member management body) are mandatory bodies management body) are mandatory bodies Management board (min. 3 members) and Management board (min. 3 members) or (or) supervisory council (3-15 members) are supervisory council (3-15 members) is a optional bodies mandatory body No residence requirements to the general No residence requirements to the general manager, other members of other bodies manager, other members of other bodies Employment contract must be concluded be- Employment contract must be concluded between the general manager and the company tween the general manager and the company Audit required if certain criteria are met* Audit required Comprehensive tax regulation Comprehensive tax regulation - Transfer pricing regulation is applicable - Transfer pricing regulation is applicable * Audit required, if at least two of the following criteria are met: - Transfer pricing documentation is manda- - Transfer pricing documentation is manda- - net revenue from sales exceeds EUR 3.5 million tory when turnover is over EUR 2.9 million tory when turnover is over EUR 2.9 million for the financial year; - value of assets in the balance sheet exceeds Thin capitalisation rules apply (4:1) Thin capitalisation rules apply (4:1) EUR 1.8 million; - average number of employees exceeds 50 for the financial year.

10 Business Guide Lithuania 2016 Accounting and audit requirements Limited liability companies may choose at their own discretion to follow either the Lithuanian Business Accounting Standards or Ranking according to the World Bank‘s Doing Business 2016 report International Financial Reporting Standards (IFRS). Companies whose securities are traded in the regulated markets must keep their accounting records and prepare their financial statements in accordance with IFRS. If the financial year of a company

Ease of Doing Business Rank Starting a Business Dealing with Construction Permits Registering Property Getting Credit Minority Protecting Investors Paying Taxes Borders Across Trading Contracts Enforcing Resolving insolvency coincides with a calendar year, Belarus 44 12 34 7 109 57 63 25 29 69 the financial statements must be Czech Republic 36 93 127 37 28 57 122 1 72 22 approved by the general meeting Estonia 16 15 16 4 28 81 30 24 11 40 of shareholders by 1 May of the Hungary 42 55 88 29 19 81 95 1 23 65 following calendar year. Latvia 22 27 30 23 19 49 11 4 1 15 The financial statements together Lithuania 20 8 18 2 28 47 49 19 3 70 with an independent auditor’s report (in case of statutory audit) must be Poland 25 85 52 41 19 49 58 1 55 32 submitted to the Register of Legal Romania 37 45 133 64 7 57 55 1 34 46 Entities, and they must be made Russian Federation 51 41 119 8 42 66 47 170 5 51 publicly available in accordance Slovak Republic 29 68 84 5 42 88 73 1 63 33 with the legal acts. Source: The World Bank: Doing Business, 2016

Branch office Representative office Operating as a foreign company - Structural unit of a foreign company - Structural unit of a foreign company No registered presence (operations through (not a separate legal entity) (not a separate legal entity) a foreign company, without any corporate - A founder is liable for the obligations - A founder is liable for the obligations registrations in Lithuania) of a branch of a representative office - May engage in all or any part of the busi- - May engage in limited-scope operations: - May engage in any legitimate activities ness activities of a founder act on behalf of the founder, etc. - For licensed activities, registration of - May engage in licensed activities with a company or a branch may be necessary certain restrictions No share capital requirements No share capital requirements No share capital requirements Registration in 1-2 weeks Registration in 1-2 weeks No corporate registration required, however, registration for tax purposes may be necessary General manager is a mandatory manage- General manager is a mandatory manage- Bodies and their composition are regulated ment body ment body by the country of incorporation No additional corporate body may be formed No additional corporate body may be formed Bodies and their composition are regulated by the country of incorporation If the founder of a branch is a non-EEA com- If the founder of a representative office is No residence requirements apply pany, at least one person acting on behalf of a non-EEA company, at least one person the branch should reside in Lithuania acting on behalf of the representative office should reside in Lithuania Employment contract must be concluded Employment contract must be concluded No employment contracts are required between the general manager and the between the general manager and the repre- branch or the founder sentative office or the founder Audit may be performed as a part of the Audit may be performed as a part of the No audit is required founder’s audit founder’s audit Less comprehensive tax regulation Less comprehensive tax regulation Less comprehensive tax regulation - Transfer pricing regulation is applicable - Transfer pricing regulation is applicable - Transfer pricing regulation is applicable - Transfer pricing documentation is manda- - Transfer pricing documentation is manda- - Transfer pricing documentation is mandatory when turnover is over EUR 2.9 million tory when turnover is over EUR 2.9 million tory when turnover is over EUR 2.9 million No thin capitalisation rules apply No thin capitalisation rules apply No thin capitalisation rules apply

Business Guide Lithuania 2016 11 Investment incentives During 2014-2020, the level of funding obtained by Lithuania from the EU Structural Funds will Investment Legal framework exceed that of the other financing The legal system of Lithuania rec- Baltic States. ognises the generally accepted Lithuania enjoys the benefits of being principles of the legal regulation of a member of the European Union. investments. The principle of equal Both local and foreign businesses, treatment means that both Lithua having decided to expand their activ- nian and foreign investors have equal ity into the Lithuanian market, can business conditions defined in the apply for the support from the EU Lithuanian Law on Investment and Double taxation Structural Funds. During the period other relevant legislation. The princi- from 2014 to 2020, Lithuania is ex- treaties ple of equal protection means that the pected to receive EUR 6.82 billion in As at 1 January 2016, Lithuania laws of Lithuania protect the rights structural assistance assigned to the had 53 double taxation treaties and lawful interests of both local and EU Cohesion policy, which includes providing for certain tax benefits foreign investors. investment in human capital, infra- for foreign investment in Lithuania. structure and public administration. The EU funds are used to upgrade companies and the manufacturing sector, promote exports, create industrial parks, establish new product de- Lithuania has double taxation treaties velopment and testing laboratories, with the following countries: renovate kindergartens and schools, Armenia France Luxembourg Slovenia reconstruct churches and manors, Austria Georgia Macedonia Spain and build hotels, bicycle paths and Azerbaijan Germany Malta Sweden ski runs. Belarus Greece Mexico Switzerland Belgium Hungary Moldova Turkey Both local and foreign micro, small Bulgaria Iceland Netherlands Turkmenistan and medium enterprises as well Canada India Norway UAE as larger companies established in China Ireland Poland Ukraine Lithuania may apply for the non- Croatia Israel Portugal United Kingdom Cyprus Italy Romania USA refundable EU support. Czech Republic Kazakhstan Russia Uzbekistan Denmark Kyrgyzstan Serbia Estonia Korea Singapore Finland Latvia Slovakia

Both foreign and local investors have equal rights in terms of protection of their investments.

12 Business Guide Lithuania 2016 Possible ways of investing in Lithuania

- Establishing a company, acquiring shares/stake in the company. - Acquiring property in Lithuania. - Acquiring control over the company by granting the loan, etc. - Concluding contracts of concession, leasing and partnership with public/private companies.

Free economic zones Kėdainiai FEZ also plays an impor- Panevėžys FEZ offers access to a wide A free economic zone (FEZ) is a ter- tant and strong role in attracting pool of employees from a city where ritory designated for the purpose of foreign investment in Lithuania. the industries of metalwork, electron- economic-commercial and financial According to the amount of foreign ics, textile, food and beverages have activities where companies enjoy pref- direct investment per capita in 2014, been developed for a long time. There erential economic and legal condi- Kėdainiai district had the highest rate are schools in Panevėžys preparing tions for their operation. Each FEZ is among other districts within Kaunas qualified workers in the areas of elec- established by a separate law. County (5,408 EUR/capita). This rate tronics, mechatronics, electrical and In 1996 two FEZs were established was twice higher than Kaunas County other kinds of engineering. in Lithuania: one in Kaunas and the rate. Major investors in economic Šiauliai region has well-established other one in Klaipėda. They were activities of Kėdainiai district are from competencies in leather and textile established for a period of 49 years. Russia, Denmark and Finland. production, which have enabled it to As of 1 January 2012, five more Baltic FEZ in Marijampolė is located form a cluster now serving the world FEZs were established in Akmenė, at a crossroad of wide (Russian stand- renowned brand, IKEA. Additionally, Kėdainiai, Marijampolė, Panevėžys ard gauge) and narrow railway tracks Šiauliai FEZ is specializing in me- and Šiauliai. At the moment, how- conveniently accessible by road. chanical engineering, production of ever, Akmenė FEZ is not operating It, therefore, provides seamless logis- electrical equipment and home appli- yet as the procedures have not been tic opportunities of railway and motor ances, and construction materials. finalised yet. transport across the Baltic Sea Region, An association uniting all six FEZs op- Europe and Asia. Baltic FEZ has been erating in Lithuania was established established by a team of professionals at the end of 2015. Its goal is to create who are willing to responsibly assist 2,000 new jobs and attract invest- investors in the process of setting up ments of more than EUR 400 million. and developing a successful business. With superb road, rail and sea access, Klaipėda FEZ forms part of the hub of a multi-modal transport network. It was identified in the European Free economic No tax Union Transport Infrastructure Needs on dividends for foreign Assessment (TINA) programme as zones investors a site for the establishment of a logistics centre, forming a part of the Euro- pean-wide network of these centres. Kaunas FEZ offers both a strategic No tax on real estate geographic location and excellent No corporate development conditions. Situated income tax next to Kaunas International Airport during the first 6 years and in the proximity of the ice-free and 50% lower corporate income tax rate (i.e. 7.5%) Klaipėda Seaport, Kaunas FEZ is over the next 10 years conveniently accessible via road and railway systems.

Business Guide Lithuania 2016 13 Latvia

Šiauliai Klaipėda Baltic Sea Gargždai Panevėžys

Ramygala Kėdainiai Tauragė Ukmergė Kaunas

Vilnius Russia Marijampolė Alytus Investment in real Poland Belarus estate and land Land (except for agricultural and forestry) may be acquired only by companies or individuals who are 5 integrated R&D and business centres (valleys) established or residing in the EU or 6 free economic zones (active) in countries that are the members of 14 industrial parks OECD, NATO or EEA. Such individuals and companies are allowed to buy up to 500 hectares of farmland (or more if the buyer is a stockbreed- Science and business valleys Industrial parks er), provided that the buyer has at 5 integrated science, research and Lithuania attracts investors not only to least 3 years of farming experience business valleys are being developed its FEZs but to its industrial parks (IPs), or has completed studies leading to in the territories of Vilnius, Kaunas as well. Industrial sites in Lithuania agriculture-related profession. and Klaipėda. Each of these valleys have already been fully prepared for Registration of property in Lithuania specializes in a different area of scien- business use and they have the entire is smooth and simple. Generally, no tific research: laser and light technolo- necessary physical infrastructure which stamp duties are charged on sale/pur- gies, civil engineering, biotechnology, has been brought to the investor’s chase transactions. Real estate-relat- molecular medicine, nanotechnolo- land plot free of charge. Currently, five ed transactions, however, require no- gies, sustainable chemistry and bio state-owned IPs (in Alytus, Kėdainiai, tary’s approval. A notary fee payable pharmacy, information and commu- Panevėžys, Ramygala and Šiauliai) and by a legal entity on sale/purchase of nication technologies, electronics and nine private IPs (in municipalities) are real estate amounts to 0.45% of the organic electronics, and others. being developed. real estate price, but it may not be In February 2013, Vilnius University An investor’s needs are of primary less than EUR 29 and not more than National Scholarly Communication importance, so land in these industrial EUR 5,800. Besides, changes in real and Information Centre was opened parks may be subdivided into smaller estate ownership rights must be reg- at the Sunrise Valley. It is a part of a parts and further leased for long-term istered with the Real Estate Register. Sunrise Valley project which attempts periods at favourable prices. The IPs The amount of the fee charged for the to promote growth of knowledge-in- established in smaller towns are rapidly registration of a title to immovable tensive economic activities in Vilnius. developing, as they can offer cheaper property depends on the type and Furthermore, a joint health science but effective, well-qualified and highly value of that property. centre accommodating international- motivated labour force in addition to ly acknowledged biotechnology scien- favourable real estate rent prices*. tists and students was opened at the Sunrise Valley in 2015. The National Centre of Physical and Technological Sciences and the Faculty of Chemistry of Vilnius University are being developed at the Sunrise Valley. In industrial parks, infrastructure is brought to the investor’s land free of charge.

* Source: www.investlithuania.com

14 Business Guide Lithuania 2016 nd Lithuania ranks 2 in the world for ease of property registration

Lithuanian laws are fully Investment EU compliant providing protection and safe and transparent guarantees legal framework Lithuanian legislation protects investors’ rights and lawful interests. The laws provide for the rights of an investor to manage, use and dispose of the investment. Foreign investors have the right to legal assistance in the event of violation of their rights and lawful interests. Investment disputes between foreign Investment in a Lithuanian Business reorganisation investors and Lithuania are resolved subsidiary Companies in Lithuania may be by way of mutual agreement of the The following exemptions from merged and divided by means of parties, by the courts of Lithuania, taxes are available when investing in reorganisation in line with certain international arbitration institutions a Lithuanian subsidiary: conditions set forth in the Lithuanian or other institutions. • there is no capital (stamp) duty on Civil Code, Law on Companies, Law In the event of investment disputes, acquisition of shares; on Corporate Income Tax and other foreign investors have the right to • there is no capital (stamp) duty on legislation. Only the legal entities of refer directly to the International increase in the share capital; the same legal form may be involved Centre for Settlement of Investment • reduction of share capital that was in reorganisation (with some excep- Disputes. formed from reserves and retained tions indicated in special laws). earnings and paid to corporate The cross-border mergers can be residents is not subject to tax as performed according to the Lithua long as the conditions for the nian Law on Cross-border Mergers of participation exemption applied to Limited Liability Companies imple- dividends are met; menting the Directive 2005/56/EC. • reduction of share capital that was If properly structured, mergers are formed from shareholders’ contri- tax neutral. butions is not subject to tax.

All office buildings in Lithuania were Modern and affordable office space mostly built after 2005. As a result of a number of large real Location Total vacant area Average price EUR/m²/month estate development projects, the total of office space, m² modern office space was significantly Class A Class B increased in Vilnius in 2015. Vilnius 21,700 13.0 – 16.0 8.0 – 12.0 In 2015, two modern, cozy and con- Kaunas 1,998 9.7 – 13.0 5.8 – 8.0 venient business centers – K29 and Klaipėda 11,989 8.5 – 12.5 5.5 – 7.5 Premium – were opened, providing over 26,000 m² of class A office space. Source: www.ober-haus.lt

Business Guide Lithuania 2016 15 Working conditions Labour Working time The normal working time for an employee should not exceed 40 hours With around 3 million inhabitants, be updated depending on the needs per week and eight working hours per Lithuania is quite a small market in of the employers (e.g. non-com- day. A five-day working week is stand- Eastern Europe. However, one of the petition or non-solicitation obliga- ard, but it may be extended to a six main advantages of the Lithuanian tions of employees may be provided). days working week in certain cases. labour market is its qualified special- The Lithuanian version of the employ- The overtime work must not exceed ists in social sciences, economics and ment agreement may be accompanied 4 hours in two consecutive days and law. A strong IT sector, engineering, by an equivalent version in any for- 120 hours per year unless a collective manufacturing and construction are eign language. employment agreement provides up other highly qualified fields. The parties may agree to apply for- to 180 hours per year. According to the available data, Lithua- eign law to their employment agree- nia has highly educated talent pool*. ment. Despite such agreement, how- Holidays It ranks 1st in the EU for mathematics, ever, the Lithuanian mandatory rules The minimum annual paid holiday science and technology graduates would prevail if the actual workplace entitlement is 28 calendar days. per capita. of the employee under the employ- Additional annual holiday benefits In general, the Lithuanian regulatory ment agreement is in Lithuania. are foreseen for certain groups of legislation on employment is employ- employees (e.g. disabled persons, ee-oriented and is mainly governed by Term of an employment employees under 18 years of age, the Lithuanian Labour Code. The ba- agreement employees working the night shifts sic provisions of the current version Employment agreement in Lithuania or in abnormal/harmful conditions). of the Labour Code are overviewed may be concluded for an indefinite Annual paid holiday leave must be below. Today a new version of the La- period, or: granted in the same working year. bour Code is being discussed, which is • for a fixed period (up to 5 years) – If an employee is not able to use the aimed at liberalizing labour relations if the work is of a temporary holiday leave in full during the same and reducing an administrative bur- nature. However, it is prohibited to working year, the unused days are den for employers. conclude a fixed-term employment transferred to the next year. agreement if the work is of a per- When employment agreement is manent nature, except for the cases terminated, the unused annual Conclusion of set forth in relevant laws or collec- leave days are subject to compensa- an employment tive employment agreements; tion only for the last three years of • temporary (up to 2 months) – if the employment. agreement work is urgent or temporary in Structure of an employment nature or is intended to substitute State social agreement employees who are temporarily There is no standard form of an em- absent; security issues ployment agreement, but it must con- • seasonal (up to 8 months during The Lithuanian state social insurance tain the main employment provi- a year) – if the work is seasonal in scheme includes insurance for pensions, for example, the employee’s nature. sions, health, illness and maternity, place of work, job duties, remuner- A probationary period may be estab- unemployment, accidents at work and ation, etc. The recommended form lished in employment agreements, occupational diseases. There is no of the employment agreement has except for the temporary employment statutory requirement for the employ- been approved by the resolution of agreements. The maximum proba- ers to provide additional individual the Lithuanian Government. It may tionary period is 3 months. insurance to their employees. However, additional insurance might be required for the company in connection with its business activi- A probationary period may be established ties in Lithuania (e.g. insurance of in employment agreements. professional/commercial liability of the company).

Administrative burden for employers is being gradually simplified.

* Source: www.investlithuania.com

16 Business Guide Lithuania 2016 New labour regulations A package of new labour regulations, consisting of more than 40 legal acts, Minimum wage was approved by the Government and submitted to the Parliament for further consideration at the end of 2015. EUR 2.13 One of the main legal acts in this package is a draft version of a new per hour (gross) Labour Code. It regulates employment relations in a new manner and transposes more than 15 EU Direc- tives into the Lithuanian legislation. EUR 350 Also, the draft proposes to leave the per month (gross) standard 40-hour working week, but allows agreeing on an individual daily schedule. It also liberalizes the dismissal of employees, shortens the minimum period of notice in case of Lithuanian statutory holidays employment termination, and reduc- Date Holiday es the amount of severance pay to one monthly average salary. The adoption 1 January New Year's Day of new regulations will reduce the 16 February Independence Day (Re-establishment of the State of Lithuania) administrative burden for employ- 11 March Re-establishment of Lithuania's Independence ers, make the employment relations Set yearly Easter Sunday and Easter Monday more flexible and the recruitment 1 May International Labour Day process easier. First Sunday in May Mother‘s Day First Sunday in June Father‘s Day 24 June Rasos (Midsummer Festival) and Joninės (St John’s Day) 6 July Statehood Day (Coronation of the King Mindaugas) 15 August Assumption Day 1 November All Saints’ Day 24 December Christmas Eve 25 and 26 December Christmas

Termination of an employment agreement (current regulation which is expected to be liberalized in the future)

Cases of employment termination Grounds for termination Notice period* Severance pay Expiry of an employment Expiry of the term provided for N/A N/A agreement in the fixed-period employment agreement Mutual consent between the Written agreement on the Offer to terminate an employment N/A parties termination of the employment agreement must be accepted agreement within 7 days Notice of an employee At any time by serving to the - 14 working days N/A employer a prior written notice - 3 working days in certain circumstances (e.g. sickness or disability, retirement) Fault of an employee - Gross breach of employment N/A N/A duties, such as disclosure of commercial information, unreasonable absence from work for a whole day, etc. - Repeated breach of employment duties within the last 12 months For substantial reasons and Reasons related to professional - 2 months 1-6 average monthly salaries without the fault of an employee qualification of the employee, - 4 months for certain categories depending on the service period his/her performance, economic of employees (e.g. for of the employee and technological aspects, employees raising children restructuring of the company’s under 14 years of age or activities, etc. persons of pre-retirement age)

* The termination of the employment agreement during the probationary period is permissible with a 3 days’ notice either on the initiative of the employee or the employer. The Lithuanian Labour Code prohibits from terminating the employment agreement with employees raising children under 3 years of age on the initiative of an employer and without the fault of an employee. This restriction does not apply if the employment is terminated on the grounds of expiry of the term.

Business Guide Lithuania 2016 17 Immigration & permits EU citizens EU citizens and their family members are free to stay and work in Lithuania. Even if the family members of EU citizens are non-EU citizens, they are issued a residence certificate of a family member of an EU citizen. Non-EU citizens A non-EU citizen needs a visa to enter Lithuania, unless a visa-free regime Lithuania is a Member State of the is applied. European Union (EU) and a member Diplomatic missions or consular posts of the Schengen Area, therefore, the of Lithuania in foreign countries issue Lithuanian immigration laws were set visas to non-EU citizens who intend in accordance with the EU regula- to travel to Lithuania. The procedure tions. Thus, any EU citizen is free to and necessary documentation depend stay in Lithuania nearly without any on the requirements of a particular legal obligations. Non-EU citizens diplomatic mission or consular post (foreign nationals) might be subject of Lithuania. If a non-EU citizen stays to additional requirements, which are in Lithuania for a period longer than discussed below. 3 months, a temporary or permanent residence certificate or, in certain cases, a national visa should be obtained. A non-EU citizen must submit an application for a residence permit and other documents to a diplomatic No work or residence permits are mission or a consular post of Lithua- required for EU citizens. nia abroad. A non-EU citizen who is lawfully staying in Lithuania (holding a visa), must submit the application to the Migration Department in the territory of Lithuania in which he/ she intends to reside. Such lodging of application, however, does not entitle a non-EU citizen to stay in Lithuania before the application has been exam- ined and a decision on the issue of a residence permit has been adopted.

No actions Temporary Permanent are required residence residence upon entry certificate is certificate is required* required*

3 months 3 – 12 months 5 years

* Residence certificates can be extended for additional 12 months/5 years.

18 Business Guide Lithuania 2016 The EU Blue Card allows working and living in Lithuania.

Work permit If a non-EU citizen intends to work in Intra group secondments often fall under Lithuania, a work permit is required. The requirement to have a work the exemption from the requirement permit applies to both, short and to obtain a work permit. long-term stay cases. The main exemptions from the requirement to obtain a work permit are as follows: • when a non-EU citizen stays in Lithuania for up to 3 months: to negotiate a contract or the terms of its implementation; to train per- The EU Blue Card – employment If the salary proposed to a highly sonnel; to undertake commercial of highly skilled non-EU citizens skilled employees is greater than 3 activities; or to install equipment; The EU Blue Card is Europe’s answer national average gross monthly wages • when a non-EU citizen is posted to the US Green Card. It is designed (approx. EUR 2,100 in total), there is to Lithuania from other group com- to attract non-EU citizens who have no requirement to obtain the above- pany for the period no longer than completed at least the first stage of mentioned decision from the Lithu- 3 years to perform highly skilled higher education to the EU. The Blue anian Labour Exchange Office and to work necessary to ensure further Card is a 2-in-1 (work and residence search for employees in the Lithua activities of the Lithuanian com- permit) allowing highly skilled nian and EU labour markets. pany, provided he/she has been non-EU citizens to work and live The EU Blue Card is issued within one employed with such other group in Lithuania*. month and is valid for up to 3 years. company for at least 1 year. When a Lithuanian employer wants Foreigners who stay in Lithuania to In order to employ a non-EU citizen, to obtain the EU Blue Card for an work for the group company and their Lithuanian employers are required: employee, it is required: salary is greater than 2 national gross • to apply to the Lithuanian Labour • to apply to the Lithuanian Labour monthly average wages (approx. Exchange Office and register Exchange Office and register a va- EUR 1,400), are able to apply for the a vacancy; cancy, and residence permits for their family • to obtain the work permit from the • to obtain a decision from the Lithu- members as well. Lithuanian Labour Exchange Office anian Labour Exchange Office that If employee intends to change the em- before a foreign national arrives the employment of a highly skilled ployer during the first two years, the to Lithuania. foreigner meets the requirements permission of the Migration Depart- It is important to note that in some of the Lithuanian labour market, ment is required. cases the Labour Exchange Office and has to be informed about the inten- • to pay the employee a salary of at tion to register a vacancy 3 months least double national average gross before submitting the application for monthly wage (approx. EUR 1,400 registering the vacancy, and that the in total). vacancy has to be registered 1 month before submitting the application for the work permit.

If a non-EU citizen intends to work in Lithuania, a work permit is required.

* Source: www.apply.eu

Business Guide Lithuania 2016 19 The tax system

The Lithuanian tax system is administered by the following official institutions: the Lithuanian Tax Authority, the Customs Authority, the Social Insurance Authority and Institutions authorized by the Lithuanian Ministry of Environment.

The system of taxes and duties in Lithuania consists of: will to enjoy better conditions of fair • state taxes (direct and indirect), competition with those taxpayers who • state duties, tend to evade their tax obligations. • local duties and charges, Some parts of i.MAS related to auto- • directly applicable taxes and other mandatory mated filing of invoice registers to the payments prescribed in the European Union’s Tax Authority will be implemented regulatory enactments. already in 2016, while other changes will be introduced later.

Changes related to information exchange With effect from 1 January 2016, Lithuania adopted information disclo- Appeal procedures The Tax Information Centre sure requirements related to inter- Any person who disagrees with the If tax payers have any questions about national transparency movements decision of the Tax Authorities has the the submission of tax returns or taxa- (such as FATCA (Foreign Account right to lodge an appeal. The decisions tion matters, they can call the Tax Tax Compliance Act) and Common taken by the Tax Authorities may be Information Centre and get advice Reporting Standard of OECD) in the appealed against within 20 or 30 days. directly from the specialists of the national law. If taxpayers are dissatisfied with Tax Authority acting as a single point If certain conditions are met, the the result of the first-stage appeal, of contact. financial market participants will be they may appeal to the courts or to obliged to provide the Tax Authority a pre-trial tax litigation institution Tax payment deadline with information on their clients’ ac- (the Commission on Tax Disputes alignment counts (both individuals and legal en- under the Lithuanian Government) To reduce the administrative burden tities), such as account turnover and hearing tax disputes between a tax- for the companies, as from 1 January year-end balances, interest due and payer and the Tax Authority. Overall 2016 a single deadline has been set for debt obligations, trade in securities, 77% of decisions passed by the Com- some tax payments and tax returns insurance premiums, pension insur- mission on Tax Disputes are approved (e.g. real estate tax, pollution tax). ance premiums, and other details. by courts once they have been ap- Those taxes will have to be paid by Moreover, legal entities in Lithuania pealed against. the 15th day of the month. VAT pay- will be required to submit informa- ment deadline remains the same – tion on services acquired from foreign Anti-avoidance principle the 25th day of the following month. companies, where the value of the Lithuania has specific anti-avoidance transaction or several transactions rules. The Lithuanian Law on Tax i.MAS – modern online tax made with the same foreign entity Administration indicates that the Tax administration within a year is EUR 15,000 or higher. Authorities have a right to apply the A new smart tax administration substance over form principle for the system (i.MAS) is being introduced Returns to be submitted purpose of assessing the tax amount. by the Tax Authority. It is planned to electronically It means that if a taxpayer’s transac- implement IT and Business Intelli- As from 1 October 2016, the taxpayers tion is aimed at gaining a tax benefit gence tools to ensure a more effective will have to file all tax returns elec- (e.g. deferring the tax payment dead- administration of taxes, including tronically, except for personal income line, reducing or fully avoiding the less time consuming IT-based tax tax returns and the instances when amount of tax payable, etc.), the Tax audits and digitalization of various it will be impossible to file returns by Authorities may disregard the formal tax-related reports. i.MAS aims to electronic means due to objective rea- expression of the taxpayer’s activity. reduce the administrative burden on sons or such filing of returns would In such case they may recreate the the taxpayers and the Tax Authority, cause disproportionate administra- distorted or hidden circumstances improve the efforts of the Tax Author- tive burden. and assess the tax amount based on ity in fight against tax fraud, and the substance of the transaction. enable the taxpayers who act in good

20 Business Guide Lithuania 2016 Business Guide Lithuania 2016 21 15% CIT The standard CIT rate is 15%, which is one of the lowest in the EU.

5% The reduced CIT rate of 5% applies to: • small companies which 0% meet certain conditions; The reduced CIT rate • companies involved in of 0% applies to compa- Corporate agricultural activities nies that, inter alia: and which meet certain • employ certain groups income tax (CIT) conditions. of people eligible for social support; Tax base • are established in a FEZ For local Lithuanian companies (for the first 6 years). the tax base comprises all income sourced inside and outside Lithuania. Exemption is applied to income earned through permanent establishments in European Economic Area (EEA) countries or countries which have a Double Taxation Treaty (DTT) with Lithuania. Computation of taxable profit Incentives to holding companies For foreign companies the tax base While computing the taxable profit of Capital gains on transfer of shares comprises income generated from a Lithuanian company/foreign com- are exempt from CIT if a Lithuanian business activities carried out through pany’s permanent establishment, the company: permanent establishments in Lithua- following is deducted from income: • transfers the shares of the company nia and other specific income sourced • non-taxable income (e.g. divi- which is registered in EEA country in Lithuania, such as: dends, insurance payments, penal- or in another country with which • interest, ties received, etc.), Lithuania has a DTT; and • dividends, • allowable deductions (expenses • has held over 25% of shares of • royalties, necessary for earning income the aforementioned company • proceeds from rent/sale of immov- or deriving economic benefit), for not less than 2 years (not less able property, etc. limited allowable deductions than 3 years in the event of (e.g. depreciation of fixed assets, reorganisation). business travel and representation expenses, etc.). Tax losses carried forward Lithuanian Law on CIT also provides Operating tax losses can be carried for the list of non-deductible expenses forward for an unlimited period. Loss- (e.g. penalties, expenses related to es incurred from disposal of securities non-taxable income, etc.). can be carried forward for a period of 5 years and can only be offset against income of the same nature. Only up to 70% of current year’s taxable profits can be offset against tax losses carried forward. Operating tax losses can be carried forward for indefinite period. Transfer of tax losses Transfer of tax losses between the group companies between group companies is allowed. Tax losses can be transferred from one company to another within the same group of companies and within the same tax period, if certain conditions Capital gain exemption are met. is available on sale of shares.

22 Business Guide Lithuania 2016 Effective CIT rate in Lithuania is 5.9%

Special CIT reliefs

Relief Main benefits of the relief Investment project relief Companies implementing investment projects are entitled to reduce their taxable profit by up to 50% by deducting the actually incurred acquisition costs of fixed assets meeting certain requirements (the costs exceeding the 50% limit can be carried forward for 4 years). Depreciation (amortisation) expenses of such fixed assets are deducted in a common manner. Taxable profit can be reduced by deducting these costs if they are incurred in 2009-2018 taxable periods. Research and Development Expenses (except for depreciation (amortisation) charges of fixed assets) incurred for R&D works may be (R&D) relief deducted three times during the tax period in which they are incurred. Tax relief for Free Economic Zone FEZ companies with capital investments not less than EUR 1 million and which meet certain other (FEZ) companies conditions are exempt from CIT for the first 6 years following the date of the capital investments and they are subject to a 50% reduction in CIT rate for 10 subsequent years. Tax relief for funds granted for Companies are entitled to reduce their taxable profits and CIT payable by the amount of support granted, film production provided the films meet the defined cultural content and production criteria. The amount donated for the production of a film or its part must not exceed 20% of total production expenses, and at least 80% and EUR 43,000 of film production expenses must be incurred in Lithuania.

Transfer pricing rules Non-binding rulings Depreciation of fixed assets All transactions between associated It is a common practice to ask for non- The depreciation of fixed assets is parties must be performed at arm’s binding rulings from the Tax Author- calculated separately for each item of length. The Tax Authority has a right ity, as the procedure is simpler and asset using the tax depreciation rates. to adjust transaction prices if they quicker compared to the procedure Generally, buildings are depreciated do not conform to market prices. of binding rulings. over 8 to 20 years (new buildings The Lithuanian transfer pricing rules Non-binding rulings protect the tax over 8 years), machinery and plant refer to the Transfer Pricing Guide- payer from penalties and penalty are depreciated over 5 years. Several lines for Multinational Enterprises interest if the Tax Authority changes types of intangibles (software, rights and Tax Administrations prepared by its opinion in the future. In practice, obtained, etc.) are usually amortised the Organisation for Economic Coop- however, the Tax Authority does not over 3 to 4 years. Tax goodwill can eration and Development (OECD) to tend to change its opinion if the cir- be amortised over 15 years if certain the extent that they do not contradict cumstances are fully disclosed in the conditions are met. with the domestic rules. request for the ruling. All companies with annual revenue Tax compliance exceeding EUR 2,896 million, as well Thin capitalisation rules The taxable period for CIT is usually as all banks, insurance companies and The Lithuanian thin capitalisation a calendar year. The tax return has to credit institutions are required to pre- rules apply in respect of borrow- be filed and CIT due has to be paid be- pare transfer pricing documentation ings from related parties as well as fore 1 June of the following year. Hav- in a specifically prescribed form. borrowings guaranteed by related ing obtained the permission from the As from 1 April 2016, general manag- parties. The maximum debt to equity Tax Authority, the companies may use ers of companies that fail to comply ratio is 4:1. Interest on related-party a taxable period other than a calendar with the above-mentioned require- loans exceeding this ratio is treated as year. In this case, the tax return has ment for the transfer pricing docu- non-deductible for tax purposes. to be filed and CIT due has to be paid mentation may be subject to a penalty The above provisions do not apply if before the 1st day of the 6th month of ranging from EUR 1,400 to 4,300. a Lithuanian company can prove that the next taxable period. the same loan under the same condi- The companies are also subject to Binding rulings and advanced tions would have been granted by a advance CIT payment in Lithuania. pricing agreements non-related party. There is a possibility to apply for a binding ruling or advanced pricing agreement (APA) from the Tax Authority in respect of the future transactions. Application process Companies may benefit from investment, and other matters related thereto are R&D, film production and FEZ reliefs. governed by specific rules approved by the Tax Authority.

Business Guide Lithuania 2016 23 Withholding tax (WHT) Certain income sourced in Lithua nia and received by a foreign entity otherwise than through its permanent establishments in Lithuania is subject to WHT.

Withholding tax

Type of payments subject to WHT Taxation rules Dividends - Dividends paid out to foreign/Lithuanian companies are generally subject to WHT at a rate of 15%. - However, dividends paid to foreign/Lithuanian companies are not subject to WHT if the recipient has held not less than 10% of voting shares of the paying company for a continuous period of at least 12 successive months. This relief does not apply if the recipient of dividends is registered in blacklisted territories. - Dividends received by a Lithuanian company from foreign companies are not subject to taxation in Lithuania if a foreign company is registered in a country of European Economic Area (in this case no participation or holding limits are applied). Interest - Interest sourced in Lithuania and received by a foreign company is generally subject to WHT at a rate of 10%. - Interest paid from Lithuanian companies to foreign companies established in the European Economic Area or in countries with which Lithuania has a DTT is not subject to WHT in Lithuania. Royalties - Royalties sourced in Lithuania and received by a foreign company are generally subject to WHT at a rate of 10%. - Royalties paid to the qualifying related parties, EU tax residents, are not subject to WHT in Lithuania. Proceeds from the sale or lease - Such proceeds received by a foreign company are subject to WHT at a rate of 15%. of immovable property located in Lithuania Proceeds from performers’ or - Such proceeds received by a foreign company are subject to WHT at a rate of 15%. sports activities carried on in Lithuania Payments to the Board and - Such proceeds received by a foreign company are subject to WHT at a rate of 15%. Supervisory Board members

The withholding tax return has to 0% applies to payment of dividends be filed and the tax due has to be paid by the 15th day of the month if 10% of shares are held or are planned following the month during which to be held for at least 12 months payments were made. Tax withheld from dividends has to be paid by the 10th day of the next month.

24 Business Guide Lithuania 2016 Business Guide Lithuania 2016 25 21% VAT The standard VAT rate is 21%, which is applied to most supplies of goods and services in Lithuania. Special VAT reliefs • Doing business involving a Lithuanian warehouse? 9% Check the call-off stock simplifi- The reduced VAT rate cation and save costs. of 9% applies to: 5% The reduced VAT rate of 5% Foreign companies that bring goods to • books, newspapers, applies to: other printed material; Lithuania and sell them on from there • pharmaceuticals, medicinal • public transport services; without having an establishment in goods compensated to • heating of residential consumers by the state; the country may avoid Lithuanian premises; • technical aid devices and VAT registration requirement and VAT • hotel accommodation. their repair for disabled compliance costs if they use the VAT persons. call-off stock simplification. A Lithua nian warehousing service provider may take care of VAT obligations of the foreign companies using its own local VAT number. The VAT legislation provides for detailed conditions on how this simplification may be used. • Having bad debts including VAT? Value added tax Supply, chartering, rent, fuelling, Make use of the VAT relief for provisioning of vessels navigating on bad debts. (VAT) the high seas and aircraft mostly used Lithuanian VAT payers can recover VAT was introduced in Lithuania back for transport services may be subject output VAT that has been paid by in 1994. Since 2004, the Lithuanian VAT to a 0% VAT rate. them to the Tax Authority but has legislation has been aligned with the EU If a 0% VAT rate applies, it is still never been paid to them by their VAT legislation. Thus, the Lithuanian possible to deduct input VAT on clients. The period for a client’s debt VAT system does not differ from those purchases with 21% VAT, and refund to be considered as a bad debt is gen- in any other EU member state. a VAT overpayment in cash from the erally 12 months from the date of the The standard VAT rate of 21% has Tax Authority. supply of goods or services. In some been valid since 1 September 2009. Financial, insurance, health and edu- cases, the VAT on bad debts may be While keeping the base for reduced cation services may be exempt from recovered even prior to the expiry of VAT rates (9%, 5%) quite narrow, VAT, but without giving rise to a right 12 months. The VAT legislation pro- Lithuania allows a variety of VAT ex- to deduct input VAT incurred. vides for detailed conditions on how emptions and VAT reliefs, which help As a general rule, sale of real estate is this relief may be applied. businesses to keep their administrative exempt from VAT. The exemption may • Planning to restructure your costs lower and save their cash flows. apply to old buildings and agricul- business? tural land unless the seller opts to tax Make sure the transfer of a busi- VAT exemptions such transaction. ness is VAT free. As a rule, all the supplies should be taxed Sale of new buildings (i.e. before ex- If a taxable person transfers his busi- with VAT at the standard or reduced VAT piry of 24 months after their comple- ness or a part of it as a complex to an- rate. Some supplies do not have to be tion or reconstruction) are subject to other taxable person, such a transfer taxed at all. VAT legislation provides for a 21% VAT rate. The same applies to may be not subject to VAT in Lithua- more detailed rules on such cases. building land. nia. This relief reduces cash flow issues A 0% VAT rate applies to supply of Long-term rent of residential prem- for companies involved in a deal. goods transported from Lithuania to ises and any rent of non-residential • Releasing non-EU goods for free another EU member state or outside premises may be exempt from VAT, circulation in Lithuania? the EU. Services related to such sup- unless the lessor opted to tax such Save cash flows by making no plies may be zero-rated, as well. transactions. import VAT payments. Lithuanian VAT payers importing goods from non-EU countries to Lithuania can avoid the actual import No advance VAT payments VAT payment to the Customs Author- ity and thereby save their cash flows. Import VAT may be reported as payable and as deductible in the same VAT return.

26 Business Guide Lithuania 2016 Simple VAT rules for e-invoicing and e-archiving

• Having high VAT costs due to E-invoicing and e-archiving VAT reporting is easy VAT-exempt supplies? Lithuanian VAT legislation allows using For VAT compliance, Lithuanian VAT Check the option to tax quite simple electronic invoicing and ar- payers are required to file a 1-page VAT-exempt transactions. chiving solutions that help to reduce the VAT return each month. If real estate is acquired with VAT, level of consumption and eliminates the A European Union Sales List must be owners of real estate may opt to tax need for keeping paper invoice archives. filed in addition to VAT return only real estate supply or rent and avoid Even PDF invoices sent by email to cli- if goods or services are supplied to the VAT costs. The option may usually ents may be treated as proper invoices other EU member states. be exercised if the client is a VAT-reg- that do not need to be printed out. In addition to the VAT reporting istered business or a VAT-registered mentioned above, new reporting ob- individual conducting a business. VAT registration within 3 days ligations will occur as from 1 October If opted to tax real estate transactions, Local companies and individuals 2016. VAT payers will be obliged to VAT is charged for at least 24 months must register for VAT purposes if their regularly submit electronic registers on the same type of transactions. turnover exceeds EUR 45 thousand of VAT invoices issued /received and There is an option to calculate VAT for a period of 12 successive months. transportation documents to the on particular financial transactions No threshold applies to foreign tax- Lithuanian Tax Authority. as well, for instance, on loan interest able persons which have an obligation The 25th day of each month is a received from a group company. to register for VAT purposes from deadline for accountants to file VAT • Providing construction services? the commencement of their business returns and pay VAT to the Tax Au- Check local reverse charge VAT activities in Lithuania. A VAT number thority for the previous month. rules. should be obtained before any supply As from 1 January 2016, no advance As from 1 July 2015, the companies is made. The newly established local VAT payments have to be made, providing construction services are entities may be registered for VAT thereby reducing the administrative not obliged to pay output VAT. Output purposes automatically upon their burden for the companies. VAT is calculated and can be deducted registration, in which case no VAT by the purchaser of the services. registration application must be sub- Brief list for irrecoverable The new mechanism allows saving mitted to the Tax Authority. input VAT cash flows for the service provider. The VAT registration may be a com- In general, VAT cannot be recovered • Involved in VAT-exempt business? plex process but it is definitely a quick on any expenses that are not related Check the applicable cost shar- one. A local company or resident to supplies taxed with VAT. ing exemption and reduce your individual may obtain a VAT number The Lithuanian list of specific pur- VAT costs. within 3 business days. chases not eligible for VAT recovery is Services provided between the mem- Companies established in other extremely short: bers of the group of companies can EU member states may be directly • 100% VAT on purchase and rent of be treated as VAT exempt, provided registered for VAT purposes, whereas a passenger vehicle, but VAT on car certain conditions are met. companies registered in non-EU fuelling and maintenance may be countries must appoint a jointly liable recovered at 100%; fiscal agent who will take care of all • 25% VAT on business representa- the VAT obligations. tion expenses. A part of irrecoverable input VAT may still be recovered by deducting it as an expense from the taxable income for CIT purposes. Recoverable VAT Option to tax on bad debts VAT-exempt Import VAT supplies payment deferral

VAT exemptions Call-off stock Local reverse- simplification charge VAT on VAT-free transfer construction of a business services

Business Guide Lithuania 2016 27 Personal income tax The tax year PIT The tax year is a calendar year. Income is taxed in the year in which it is actually received. Lithuanian tax 5% residents are taxed on their world- The reduced PIT wide income and Lithuanian tax non- 15% rate of 5% applies to Flat rate residents are subject to the Lithuanian income from certain personal income tax (PIT) on certain individual activities Lithuanian-sourced income, the list of which is exhaustive.

Determination of residence for tax purposes A Lithuanian tax resident is deemed to be any of the following: • an individual whose permanent place of residence during the tax Tax base Non-taxable income year is in Lithuania, or Lithuanian tax non-residents are There is a wide list of non-taxable • an individual the location of whose taxed on the Lithuanian sourced income in Lithuania such as: personal, social or economic income, such as: • interest income on deposits kept in interests during the tax year may • interest, except for interest re- banks and other credit institutions, be considered to be in Lithuania ceived on the Lithuanian Govern- non-equity securities and non‑eq- rather than in a foreign country, or ment’s bonds; uity government securities if the • an individual who stays in Lithua- • income from distributed profits amount does not exceed EUR 500 nia, continuously or intermittently, and payments to the members of and the deposit agreement was for 183 or more days during the tax the Board or Supervisory Board; concluded or securities were ac- year, or • royalties; quired after 1 January 2014; • an individual who stays in Lithua • employment income; • profits from transfer of shares or oth- nia, continuously or intermittently, • income from sporting and perform- er securities not exceeding EUR 500 for 280 or more days during two ing activities; (additional conditions also apply); successive tax years and who • income from the sale/lease of • income received as a gift from stays during one of such years in immovable property located in spouse, children (adopted chil- Lithuania continuously or intermit- Lithuania, etc. dren), parents (adoptive parents), tently, for 90 or more days. brothers, sisters, grandchildren and grandparents, etc.

Payroll taxes paid directly to the state budget on an individual’s behalf from other individual’s funds are non-taxable benefits in Lithuania.

There are no Status of tax returns and tax balance statistics are available online 24/7. taxes on wealth in Lithuania. The Tax Authority provides pre-filled Electronic personal income tax returns based on data provided by employers and other declaration third parties. system (EDS)

A pre-filled tax return can be submitted by one click.

28 Business Guide Lithuania 2016 Social security Moreover, the reciprocal social security agreements exist between Contribution rates Lithuania and the following coun- All individuals working under an tries: Belarus, Ukraine, Russia, employment agreement in Lithuania Canada, the USA, the Netherlands, must be covered by a social security Moldova, the Czech Republic, Esto- scheme. Social security contributions nia and Latvia. Deductions (SSC) are also compulsory for self- Lithuanian tax residents may deduct employed individuals, sportsmen, the following expenses from their Tax compliance performers, individuals receiving Social security contributions should taxable income, provided that these income under copyright agreements, expenses do not exceed 25% of the be paid on a monthly basis by the persons involved in individual activi- 15th day of the following month. amount of taxable income received ties, farmers, notaries, bailiffs, etc. over the tax year: For the insurers, it is mandatory SSC are not deductible against PIT to use an advanced system of • life insurance premiums paid for for taxation purposes. At present, no one’s own benefit or for the benefit e‑services (referred to as “EDAS”) lower or upper limits exist for SSC to provide the information to the of a spouse, minor children or on employment related income. children with disability (special Social Security Authority. It simpli- fies the preparation and submis- conditions apply); International social security • pension contributions paid to pension of information to the Social The Lithuanian legislation on social Security Authority. By one click, sion funds for one’s own benefit or security has been harmonised with for the benefit of a spouse, minor the users can check the history of the EU regulations. Foreign employ- documents submitted and payments children or children with disability ees seconded to Lithuania and their (special conditions apply); made. EDAS helps to save time and employers are not required to pay improves efficiency. • payments for vocational training or SSC in Lithuania if A1 certificate studies (special conditions apply). is obtained. However, the above mentioned payments should be made to the companies established in the EEA. Social security benefits Double taxation elimination Residents are entitled to a relief from Free healthcare from public double taxation under effective DTT. Sickness Maternity/ healthcare service According to the domestic legislation, allowances paternity providers income (except for interest, dividends allowances and royalties) received by a resident of Lithuania in a foreign country, which is an EU Member State or with which Lithuania has a valid DTT, is tax Old age, disability and widows’/ Unemployment Benefits for exempt in Lithuania (the documents widowers’/ benefits accidents orphans’ substantiating the amounts of income at work and pensions received and tax paid abroad should occupational be submitted to the Tax Authority). diseases

Tax compliance Income tax withheld by employers must be paid to the state budget on or before the 15th day of the respec- SSC rates tive month (if the last portion of Rate Type of income income has been paid out on or before the 15th day of that month) or on or 30.98-32.6% for the insurers For individuals working under an employment contract. and 9% for the insured The insurer’s contribution depends on the level of before the last day of the respective accidents at work and professional diseases. month (if the last portion of income 29.7% for the insurers and Income derived under copyright agreements received has been paid on or before the last 9% for the insured not from the employer (no employment agreement). day of that month). 28.5% for the insurers and Income derived from sports activities and performers’ Lithuanian tax residents filing their 9% for the insured activities received not from the employer. annual income tax returns have to pay 30.98% for the insurers and Income derived from sports activities, performers’ the related PIT on or before 1st of May. 9% for the insured activities or income derived under copyright agreements Lithuanian tax non-residents who file if individuals also have the employment agreements concluded with the same or another company. tax returns on a monthly basis have 37.5% Income received from individual activities, including to pay PIT within 25 days from the lawyers, notaries and bailiffs, except for income derived receipt of income which is reported. under business certificates. 35.3% For the members of small partnerships.

Business Guide Lithuania 2016 29 Other taxes

Other direct taxes

Tax Tax base Tax rate Real estate tax The tax is levied on the value of immovable The tax rate ranges from 0.3% to 3% property. depending on local municipalities. Pollution tax The tax is levied on stationary and mobile The tax rates vary depending on the type pollution sources used for commercial and toxicity of the pollutant in question. purposes, dumped waste, as well as on imported or produced certain filled packaging and specified products. Contributions to the Guarantee Fund The tax is levied on the gross salary payable 0.2%. to employees. Land tax The tax base depends on the average The tax rate ranges from 0.01% to 4% market value of land. The transitional period depending on local municipalities. has been set for 2013–2016, during which the taxable value is being gradually increased to the market value. Land lease tax The tax base depends on the average The minimum tax rate is 0.1% and the market value of the leased state-owned land. maximum tax rate is 4%. Lottery and gaming tax For the organisers of lotteries, the tax base For the organisers of lotteries, the tax rate is the nominal value of lottery tickets put into is 5%. circulation. For the organisers of bingo, totalizator and For the organisers of bingo, totalizator and betting – the tax rate is 15%. betting, the tax base is the amount of income The organisers of games with gaming less the winnings actually paid out. machines and table games must pay fixed fees established for each gaming device.

Customs duties Excise duties The EU customs legislation has been Excise duties are imposed on the fol- adopted in Lithuania in full since lowing goods: 1 May 2004 (with no transitional • ethyl alcohol and alcoholic drinks, periods), and its provisions to a large including beer, wine and interme- extent are set out in Council Regula- diate products, tion No. 2913/92 and Commission • processed tobacco, including Regulation No. 2454/93. cigarettes, cigars, cigarillos and The Union Customs Code as per smoking tobacco, Regulation EU 952/2013 will apply • energy products, including fuel, in Lithuania as from 1 May 2016. petrol, kerosene, gasoline, fuel oil, coal, coke, lignite, natural gas and electricity.

Modern electronic declaration system (EDS) ensures 24/7 service availability The Tax Information Centre is to the tax payers and makes the payment a one-stop shop for all questions of taxes easy and fast. related to taxation.

30 Business Guide Lithuania 2016 Useful links

Invest Lithuania – www.investlithuania.com Investors’ Forum – www.investorsforum.lt Confederation of Lithuanian Industrialists – www.lpk.lt Lithuanian Business Confederation – www.lvk.lt Association of Lithuanian ICT Industry “Infobalt” – www.infobalt.lt Engineering Industries Association of Lithuania – www.linpra.lt Association of Lithuanian Chambers of Commerce, Industry and Crafts – www.chambers.lt Association of Lithuanian Banks – www.lba.lt Klaipėda Free Economic Zone – www.fez.lt Kaunas Free Economic Zone – www.ftz.lt Kėdainiai Free Economic Zone – www.kedainiulez.lt Marijampolė Free Economic Zone – www.balticfez.com Panevėžys Free Economic Zone – www.pfez.lt Sunrise Valley – www.sunrisevalley.lt Exhibition and Conference Management Lithuanian Exposition Center LITEXPO – www.litexpo.lt Ekspozicijų Centras – www.expo.lt Expo Vakarai – www.expo-vakarai.lt AIM Group Baltic – www.balticconference.com Transport and Communications Vilnius, Kaunas and Palanga Airports – www.ltou.lt Lithuanian Railways – www.litrail.lt Port of Klaipėda – www.portofklaipeda.lt Lithuanian National Road Carriers Association “Linava” – www.linava.lt State Institutions President of the Republic of Lithuania – www.president.lt Lithuanian Parliament – www.seimas.lt Government of the Republic of Lithuania – www.lrv.lt Lithuanian Tax Authority – www.vmi.lt Lithuanian Customs Authority – www.cust.lt Lithuanian Centre of Registers – www.registrucentras.lt Lithuanian Department of Statistics – www.stat.gov.lt Lithuanian Department of Migration – www.migracija.lt Lithuanian Labour Exchange Office – www.ldb.lt Largest Cities Vilnius – www.vilnius.lt Kaunas – www.kaunas.lt Klaipėda – www.klaipeda.lt Panevėžys – www.panevezys.lt Šiauliai – www.siauliai.lt

Business Guide Lithuania 2016 31 Deals We help clients do better deals and create value through mergers, acqui- PwC sitions, disposals and restructuring. We work together with them to help develop the right strategy before the PwC firms help organisations and Accounting deal, execute their deals seamlessly, individuals create the value they’re identify issues and points of nego- looking for. We’re a network of firms services tiation and value, and implement changes to deliver synergies and im- in 157 countries with more than We provide a full range of accounting provements after the deal. Our Deals 208,000 people who are committed services starting with primary docu- professionals are able to discover and to delivering quality in assurance, tax ments and ending with the prepara- quantify hidden value in every aspect and advisory services. Tell us what tion of financial statements in accord- of a deal. The services we provide matters to you and find out more by ance with local Business Accounting include financial due diligence (buy visiting us at www.pwc.com. Standards and/or International side and sell side), tax due diligence, In Lithuania, the firm has been oper- Financial Reporting Standards. mergers and acquisitions, valua- ating since 1993 and currently em- Our Accounting services are of tion and strategy as well as business ploys more than 160 people. Its clients advantage for the newly established recovery services. include both multinational corpora- businesses and their branches as we tions and large local companies. assist them with the development of an efficient accounting system, Assurance services Tax services which complies with the require- Our audit and accounting advisory ments of both, the company and We advise on starting up a business in services comprise audits and review of Lithuanian legislation. Lithuania and assist foreign entities financial statements as well as advice with company registration, tax com- on accounting requirements. Our In- pliance, mergers and acquisitions and Advisory services ternal Audit team provides a range of internal audit services, including out- employment law issues. Since 1 July 2012, the Advisory prac- sourcing, co-sourcing and assessment Our Tax services include compre- tices in Lithuania, Latvia, Estonia and of internal audit function. Our System hensive tax advice on all aspects of Belarus have been operating as one and Process Assurance team performs local and international taxation. integrated practice. Assignments include tax reviews, reviews and assessments of key business processes and controls, as well as tax planning services, preparation Consulting IT-related processes and controls with or advice on transfer pricing docu- The services we provide include special focus on cyber security ser- mentation, representation at tax performance improvement, finan- vices. We also offer financial reporting disputes, tax due diligence and all cial management, IT risk manage- advisory services, including solutions aspects of tax compliance. ment, internal audit, risk assessment for improvement of financial report- and management. Our advisers ing and consolidation. Legal services can assess the potential of a business undertaking and help achieve In 2014, law firm Bukauskas ir Part- long-term results in cost reduction, neriai became a part of PwC Legal, PwC’s Academy revenue maximisation, improve- a global network of Legal Services. PwC’s Academy can help your busi- ment of key business processes and The PwC Legal network has the ness develop the future leaders internal control mechanisms. IT risk broadest geographical coverage of that you need to succeed in today’s assessment and management solu- any Legal Services network in Central marketplace. Your business and your tions are designed to help companies and Eastern Europe. PwC Legal offers people are able to benefit from our optimise controls and management integrated legal advice alongside knowledge and experience. PwC’s of IT resources, as well as select and with other PwC services. Please visit Academy delivers various trainings implement IT systems. www.pwclegal.lt for more informa- on: International Financial Reporting tion about PwC Legal. Standards, Lithuanian GAAP, Internal Audit, ACCA and ACCA DipIFR, Man- agement Accounting and other.

More than 208,000 people across the PwC network

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32 Business Guide Lithuania 2016 Contacts

PricewaterhouseCoopers UAB J. Jasinskio g. 16B LT-03163 Vilnius, Lithuania Phone +370 5 239 2300 Fax +370 5 239 2301 Rimvydas Jogėla [email protected] Managing Partner www.pwc.com/lt Assurance Leader Phone +370 5 239 2311 PwC Legal [email protected] J. Jasinskio g. 16B LT-03163 Vilnius, Lithuania Phone + 370 5 239 2300 Fax +370 5 239 2301 [email protected] www.pwclegal.lt Vidas Venckus Partner, Advisory Leader Phone +370 5 239 2308 [email protected]

Nerijus Nedzinskas Partner, Leader of Tax, Legal and Accounting Services Phone +370 5 239 2350 [email protected]

Rokas Bukauskas Leader of PwC Legal Phone +370 5 239 2341 [email protected]

Giedrė Cater Accounting Services Leader Phone +370 5 254 6934 [email protected] www.pwc.lt